Ballmer memo to 'Microsoft All' - what it said

Microsoft CEO Steve Ballmer identified Linux and open source software as key competitive challenges to the company in a memo sent to all employees on Wednesday.

"In this environment of lean [IT] budgets and concerns about Microsoft's attention to customers, non-commercial software such as Linux and OpenOffice is seen as an interesting, 'good enough' or 'free' alternative," Ballmer wrote in his annual letter to employees summarising Microsoft's market position and its goals for the coming year.

"Non-commercial software products in general, and Linux in particular, present a competitive challenge for us and for our entire industry, and they require our concentrated focus and attention," Ballmer wrote.

"IBM's endorsement of Linux has added credibility and an illusion of support and accountability," Ballmer continued, "although the reality is there is no 'center of gravity', or central body, investing in the health and growth of non-commercial software or innovating in critical areas like engineering, manageability, compatibility and security."

Microsoft has become an increasingly harsh critic of open source software over the past few years. Last month, the company signed a deal with SCO Group to license source code and a patent related to the Unix operating system. Many software industry analysts saw the deal as lending credence to SCO's charges that large parts of Unix source code have been copied into Linux.

Ballmer sent the memo to Microsoft's employees following an annual retreat he'd spent with other top managers. A refocused mission statement, involving a shift from just software to software and related services, evolved from last year's retreat. A top priority of this year's memo was to come up with further steps toward putting the mission statement into action, Ballmer wrote.

Wednesday's memo clearly identified Linux and open source as a growing threat to the company. Last year's missive barely mentioned Linux and open source as a challenge.

Ballmer expressed confidence that Microsoft can fend off Linux by promoting sometimes overlooked advantages of the Windows operating system and related software. He cited recent independent studies that conclude businesses spend less overall to use Windows than free open source software, due to lower support and maintenance costs.

"There is always enthusiasm in our business for new concepts," he wrote. "So-called 'free software' is the latest new thing. We will rise to this challenge, and we will compete in a fair and responsible manner that puts our customers first. We will show that our approach offers better value, better security and better opportunity."

"While the non-commercial model may lead to many flavors of software, getting broad, consistent innovation requires coordination across many technology components. In the event of needed enhancements or fixes, the Linux development community, no matter how well intentioned, simply cannot advance Linux the way we can - and must - innovate in Windows," Ballmer wrote.

Ballmer also disputed suggestions that software and other aspects of information technology are reaching commodity status. "There is an interesting debate emerging in the industry today about the value of information technology," he wrote. "Some pundits are suggesting that IT no longer matters; that what was once a transforming technology has reached the end of the road in terms of innovation, that it ceases to be a source of business advantage once everyone has it, and that customers should just optimize for costs and outsource IT for efficiencies.

"Information is the lifeblood of business," Ballmer countered, "and software is what gives people and businesses the ability to harness it. Software is what enables us to collect, manipulate, access, store, share, analyze and act on information. It enables companies to constantly hone their competitive edge. So, contrary to the idea that we're entering a 'post-technological era,' I believe that taking software to the next level will be one of the biggest sources of value creation for customers, and that Microsoft is well-positioned to enable this and to benefit from it."

David Becker writes for CNET News.com. Mike Ricciuti contributed to this report.